The dollar continues to depreciate against the majors, 3.5% down since January against the basket of major currencies as the worries for banking system culminated. The European Central Bank and the Bank of Japan are playing with negative interest rates, while the hawkish move by Fed to start “normalizing” monetary policy in December, rising interest rates became a nightmare. As the economic growth worsens and the central bank’s easing policies are effectiveness, investors are running to safe-haven assets like gold and yen.
[B]Yellen doesn’t take off the table the negative interest rates[/B]
Last week Yellen’s testimony revealed that even the negative interest rate policy is not off the table for the Fed! The Fed Chairwoman Janet Yellen is studying ways to prepare the economy for another recession or even a financial crisis as the financial sector is stressed of the global stock market steep drop. The policymakers will revise again the monetary policy and they would even look into negative interest rates if needed. “I wouldn’t take those off the table,” she said. At her testimony on Wednesday, she expressed her concerns that the recent global risk will weigh on the US economic activity. However, she said that the continuing employment gains and the strong wage growth could support the economy.
From my side, all these are translated to the willing of a weaker dollar for the economy to expand at a strongest and more stable pace and ways to prepare the market that they would postpone the series of gradual rate hikes. The central bank policymakers miscalculated the risks the economy was apt to and began the historical “normalization” procedure that is possible to turn negative for the economy if they do not manage it wisely. I wouldn’t expect negative interest rates in the near future but I wouldn’t be surprised if the central bank uses other tools to ease the monetary policy and boost the growth.
[B]The Week Ahead: Feb 15 – 19[/B]
This week promises to inundate traders with a plethora of macroeconomic data. The FOMC and the RBA meeting minutes will be published! Moreover, a speech from Mario Draghi, the UK and Australian employment reports as well as the UK and US inflation report will be closely watched.
On [B]Monday[/B], the US and the Canadian market will be closed due to public holidays, thus, I would expect volatility to be thinner than usual. In Eurozone, the only notable macroeconomic data is December’s trade balance and ECB President’s Mario Draghi speech. The president will give an introductory statement at the quarterly hearing before the committee on Economic and Monetary affairs (ECON) of the European Parliament in Brussels. Overnight, the Reserve Bank of Australia will publish its meeting minutes and the Reserve Bank of New Zealand will release its Inflation Expectations for the first quarter of 2016.
On [B]Tuesday[/B], traders’ interest will be on the UK inflation rate report and the ZEW Survey. The UK inflation rate is expected to have picked up to 0.3% yoy in January from 0.2% before but to have turned negative to -0.7% on a monthly basis from 0.1% before.
February’s ZEW Survey is expected to reveal weakness in German Current Conditions and Economic Sentiment. The print for Current Conditions is expected to fell to 56.0 from 59.7 before while the Economic Sentiment is forecasted to plunge to 3.2 from 10.2 prior. The Economic Sentiment for Eurozone is expected to decrease to the half! The forecasts are to have fallen at 10.3 from 22.7 before.
In US, the NAHB Housing Market index for February is expected to rise marginally to 61 from 60 before.
Early on [B]Wednesday[/B], the ECB will have a non-monetary meeting. A while later, the British employment report will be released. The unemployment rate in December is expected to fall even lower from the current record low to 5.0% while the average earnings to remain at the same levels. The Claimant Count in January, the people claim unemployment benefits are forecasted to decrease by 3.0K.
In US, the Building Permits and the Housing Starts for January are coming out as well as the industrial production and the capacity utilization. The FOMC minutes that are coming out later in the day will hog the limelight.
During the night, the Australian employment report will be published. The unemployment rate is expected to remain steady at 5.8% and the employed people to have increased by 15.0k in January versus a decrease of 1k before.
On [B]Thursday[/B], Eurozone’s current account for December will be out, a while before the ECB Monetary Policy meeting accounts. The US jobless claims will be out as usual.
On Friday, the UK Retail Sales will be eyed but more attention will be paid at the US Inflation Rate. January’s Inflation Rate is expected to rise up to 1.2% yoy from 0.7% before, while on a monthly basis is predicted to remain stable at -0.1%.
The Canadian Inflation and Retail sales will be out as well. The CB Leading Economic Index for January will be released. In Eurozone, the flash Consumer Confidence for February.